Unaligned exchange traded funds: risk-adjusted performance and market-timing skills

D. K. Malhotra and Philip Russel

Abstract

This paper examines the performance of specialty unaligned exchange-traded funds (UETFs) in comparison with US and global equities from February 2000 to April 2023. Our analysis reveals a significant positive correlation between the average monthly returns of UETFs and both US and global equities. Across the sample period, UETFs demonstrated superior absolute performance, as evidenced by their average monthly returns outpacing those of US and global equities. Moreover, our investigation into risk-adjusted performance indicates that UETFs surpassed US and global stocks. Notably, our findings also indicate that UETFs generated positive alpha. In addition, this study integrates rolling monthly alphas, computed in successive intervals, revealing the sustained outperformance of UETFs compared with global equities. However, it is crucial to note that, despite these advantages, UETFs remain susceptible to stock market fluctuations and are unable to completely evade volatility. This study sheds light on the nuanced dynamics of UETFs and their performance relative to broader equity markets.